July 11, 2012 / 6:40 PM / 8 years ago

UPDATE 1-U.S. ethanol output drops to lowest in nearly two years

* Ethanol output falls 36,000 bpd to 821,000 bpd
    * Stocks fall 761,000 to 19.53 million barrels

    By Michael Hirtzer
    CHICAGO, July 11 (Reuters) - U.S. ethanol output plunged to
its lowest level in nearly two years last week as soaring corn
prices pushed many biofuel refineries into the red, government
data showed on Wednesday.
    At least three U.S. ethanol plants -- two in Nebraska and
one in Indiana -- are idling as the highest corn prices in more
than a year squeeze margins in the worst spell since a string of
bankruptcies in 2007 and 2008.
    Ethanol production last week fell 4 percent, or 36,000
barrels per day to 821,000 bpd, the lowest since the week ending
July 23, 2010, according to the Energy Information
    Stocks of the biofuel fell 761,000 barrels to 19.53 million
barrels, the lowest since January.
     "It's high corn prices and not-so-high ethanol prices,"
said Wally Tyner, an energy economist at Purdue University. "If
we continue to have drought and corn continues to go up, there
will be others that suspend production."
    Ethanol plants are losing money, with the average margin in
Illinois at a negative 32 cents per gallon of fuel produced,
according to Reuters data.
    And margins could get worse, with the existing corn
stockpile dwindling and the conditions of the developing crop
the worst in 24 years due to sizzling temperatures and drought
conditions in the U.S. Midwest.
    The U.S. Agriculture Department reduced its estimate of U.S.
corn production in a monthly supply and demand report early
Wednesday. The government, which had initially projected the
largest corn crop ever, pegged the crop at 12.970 billion
bushels, the biggest since the record-large crop of 2009.
    The USDA also cut its estimate of the corn used in U.S.
ethanol production by 100 million bushels in the 2012/13 grain
marketing year ending Aug. 31, 2013.
    But Agriculture Secretary Tom Vilsack said that the
government has no plans to change its Renewable Fuel Standard
that this year sets a target for 13.2 billion gallons of ethanol
this year.
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